Service Corporation International (NYSE:SCI) Q2 2022 Earnings Conference Call August 3, 2022 9:00 AM ET
Company Participants
Debbie Young – Director, IR
Tom Ryan – Chairman and CEO
Eric Tanzberger – SVP and CFO
Conference Call Participants
Joanna Gajuk – Bank of America
John Ransom – Raymond James
Scott Schneeberger – Oppenheimer
A.J. Rice – Credit Suisse
Operator
Good morning and welcome to the SCI Shared Second Quarter 2022 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to SCI management. Please go ahead.
Debbie Young
Thank you, and good morning. This is Debbie Young, Director of Investor Relations. Today, we’re going to be providing an overview of our business results for the second quarter.
As usual, I’ll quickly go to cover our Safe Harbor language before the prepared remarks. Any comments made by our management team that state our plans, beliefs, expectations, or projections for the future are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such statements.
These risks and uncertainties include, but are not limited to, those factors identified in our earnings release and in our filings with the SEC that are available on our website. In today’s call, we’ll also discuss certain non-GAAP financial measures. A reconciliation of these measures to the appropriate GAAP measures can be found in the tables at the end of our earnings release and also on our website under the Investors sections, Webcast and Events.
To begin our prepared remarks, I will hand it over to Chairman and CEO, Tom Ryan.
Tom Ryan
Thanks Debbie. Hello everyone and thank you for joining us on the call today. First of all, I want to express my heartfelt thanks to our entire SCI team. It is your perseverance and commitment that positioned us for the results we posted this quarter. More importantly, we’ve continued to stay relentlessly focused on what we do best. helping our client families in our communities gain closure and healing through the process of grieving, remembrance, and celebration.
Now, to the business at hand. This morning, I’m going to begin my remarks with a high level overview of the quarter, followed by some further color on our business performance for the quarter, including some detail around our solid funeral and cemetery results.
For the second quarter, we generated adjusted earnings per share of $0.84, an $0.08 decrease over the prior year quarter of $0.92, which experienced a more significant pandemic impact.
For a better perspective of this quarter’s performance, we delivered earnings per share growth 45% above 2020 and 79% above our pre-pandemic 2019 second quarter. Compared to the 2021 second quarter, the funeral results were relatively flat, but well ahead of our expectations as we continue to see elevated levels of funeral services with a strong funeral average.
On the cemetery side, profitability was below prior year as preneed cemetery sales production, while still historically very strong, was down about 3% versus the 2021 second quarter.
Additionally, Cemetery Trust Fund income declined as it was impacted by steep declines in the equity and debt markets during the second quarter. So, for the quarter, we saw a $0.03 decline in earnings per share from operations, both comparable ups and acquisitions and a $0.05 decline below the line as higher general and administrative costs, primarily impacted by the timing of incentive accruals and a higher tax rate, were somewhat offset by the favorable impact of a lower share count.
Now, let’s take a deeper look into the funeral results for the quarter. Total comparable funeral revenues grew nearly $10 million or about 2% over the prior year quarter, exceeding our expectations, as growth in core revenues in recognized preneed revenue were slightly offset by reduction in general agency revenue.
Comparable core funeral revenues grew over $3 million led by an impressive 3% increase in the comparable funeral sale average. Our percentage of families selecting to have funerals and Celebrations of Life services has essentially return to pre-COVID levels.
In conjunction with the rollout of our Celebration of Life initiative, we have seen families selecting upgraded facilities and higher propensity to select catering and flowers. This increase in average was achieved despite a 170 basis point increase in the core cremation rate.
Comparable core funeral volume declined about 2% compared to the prior year quarter, slightly offsetting the positive impact of the funeral sales average. Keep in mind, the 2022 second quarter volume is still over 6% higher than the pre-COVID 2019 second quarter. We’re continuing to serve elevated levels of client families above and beyond COVID deaths, which is consistent with our commentary around this topic during our Investor Day presentation in May.
Recognized preneed revenue increased over $9 million or 28% as increased digital leads and a more effective direct mail strategy successfully drove more contract velocity within our talented SCI Direct team.
From a profit perspective, general gross profit increased almost $4 million, while the gross profit percentage increased 30 basis points to 21.6%. Revenue growth of $10 million resulted in about $4 million of incremental profit. Lower margin growth from flowers and catering, as well as higher merchandise costs, slightly reduced our expected profitability.
Preneed funeral sales production grew over $7 million or nearly 3% over the second quarter of 2021. Our SCI Direct production was particularly strong, posting an increase of almost 20% over the prior year quarter.
Increased contract velocity driven by a new and more effective targeting strategy for our direct mail and seminar programs, as well as increased digital leads were the primary drivers of our growth.
Now, shifting to cemetery. Comparable cemetery revenue decreased $18 million, or about 4% in the second quarter. in terms of breakdown, core revenue was down by $12 million compared to the prior year. Atneed revenues were flat, so recognized preneeds cemetery revenues accounted for the decline.
Other revenue decreased by about $6 million over the prior year quarter as Endowment Care Trust Fund income was negatively impacted by prior year capital gains distributions that did not reoccur.
Preneed cemetery sales production declined by $11 million or about 3% in the second quarter. We must keep in mind, we’re comparing against a 2021 second quarter that grew by 36%. Said another way, our second quarter 2022 sales production is 45% above our pre-COVID second quarter 2019 sales production.
As we referenced in our Investor Day presentation, we believe we have enhanced our sales and marketing productivity and cemetery sales from learnings achieved during the pandemic.
We’re experiencing a slight decline in sales velocity, that is for the most part being offset by increases in the core sales average. Large sales have remained robust, but down slightly by $2 million as compared to the prior year.
We have seen a slight decline in appointments held as this discretionary consumer diverted their attention to increase travel and societal engagements this year after post-COVID-related lockdown and also felt the impact of general inflationary consumer pressures.
The good news is our close rates continue to improve year-over-year and with the strength of both our sales team and our customer relationship management system, these opportunities are not lost, but rather deferred and should bode well for future sales production.
Cemetery gross profits in the quarter declined by about $14 million and the gross profit percentage dropped 170 basis points to 33.7%. Declines in high margin merchandise service and Eternal Care Trust Fund income accounted for most of the gross profit decline.
As you saw in our earnings release, we reaffirmed our 2022 adjusted earnings per share range of $3.30 to $3.70, or a midpoint of $3.50. We remain very confident in the range that we’ve provided you.
[indiscernible] segment, we’re continuing to see volumes above our expectations with a continued strong average revenue per case. Preneed funeral are trending slightly below our expectations, as the discretionary consumer seems to be slowing down a bit. We’re experiencing some inflation wage pressure that we had anticipated, and are for the most part recovering with inflationary pricing.
On the cemetery segment, our atneed revenue is trending higher than expectations due to stronger volumes. While our preneed sales production is slightly behind our expectations, due to a slight decline in velocity. We believe is attributable to diverted consumer attention and general inflationary pressures.
The good news is that we have quite a bit of completed construction scheduled to occur particularly in the fourth quarter, that have a very healthy backlog of sales that will be recognized as revenue upon completion.
We also are experiencing some elevated labor maintenance costs in our cemeteries, both internally and with third-party vendors. However, these are not material to the company as a whole and for the most part, are being recovered with inflationary pricing.
Below the line, we saw and continue to expect variable interest rates to move up. The tax rate expense incurred in the second quarter had a $0.03 incremental negative impact on earnings per share. This was associated with the sharp decline in the financial markets, so we do not anticipate this reoccurring in the back half of the year.
With that operator, I’ll now turn the call over to Eric Tanzberger.
Eric Tanzberger
Thanks Tom. Good morning everybody. I really want to start with the most important thing and that’s really thanking our 24,000 plus associates that have helped us produce these impressive financial results this quarter. Everybody in the field as you continue to provide exceptional service to our customer families and all of our communities during these exceptional circumstances, while also managing through the COVID era and taking us beyond that era. So, hear me very loud and clear, thank you for everything that you do for our company.
So, with that being said, I’d like to discuss rest of the color; our cash flow results, capital investments for the quarter, some of the market effects on our trust funds, and then provide some comments on our cash flow outlook for the remainder of this year.
So, we generated operating cash flow of $141 million in the second quarter. This is in line with our expectations. It was about $50 million lower in the second quarter last year, that again was impacted by COVID-driven positive activity similar to our adjusted earnings per share. These current cash flow results are significantly higher than pre-COVID activity levels, such as the $84 million of adjusted cash flow we generated in the second quarter of 2019.
So, for this quarter, though, versus second quarter last year, our cash flow was reflective of the $18 million decline in operating income, which excludes gains on divestitures $15 million of higher interest in cash taxes, as well as about $17 million or so of an increase use of working capital.
The cash interest payments were on target increasing expected $10 million, predominantly associated with debt restructuring transactions, which we did in the second quarter of last year, as well as a smaller impact from increases in our floating rate debt.
Additionally, the cash taxes slightly increase in the quarter over the prior year, which was in line with our expectation and this increase is only about $5 million for a total of about $95 million.
The net use of working capital in the quarter was really related to timing of some payable outflows really between the first quarter of this year and the second quarter of this year. So, think of that as really just timing.
Now, let’s shift gears and talk about the impacts of the trust funds. Obviously, as you’ve seen the volatility of financial markets has impacted the market value of our trust funds that support future revenues tied to contracts in our preneed backlog.
I’d like to most importantly, remind everybody that this is a muted effect on our near-term earnings and our near-term cash flows. So, given the 10 to 14-year average life of the customer contracts, only about 8% of those contracts in the trust backlog mature in any given year.
Therefore, the effect on the reduction in trust fund market value allocated to each individual contract is really reflected in our earnings and cash flows over a 12-year period, or about 8% per year, hence, the muted effect that I’m referencing.
More specifically at June 30th, our trust funds had decreased about 15% year-to-date, and ended this quarter with a $23 billion net unrealized loss and the totality of the funds. However, the trust funds have recovered significantly this month since June 30th after the quarter, and we are currently in a net unrealized gain position of just over $200 million. We are currently modeling our trust to the year down in the mid-single-digit percentage range.
Now, want to touch about our capital investment activity. During the quarter, we invested $245 million into our existing businesses, new build opportunities, and accretive acquisitions, as well as returning capital to our shareholders.
Let’s talk about the breakdown. We invested about a $84 million into our businesses consisting of $53 million of maintenance capital, which by the way was higher than both our expectations and the prior year, as we really accelerated the completion of several field technology and other field infrastructure projects into this quarter.
Additionally, we invested just over $30 million into cemetery development projects during the quarter. This was higher than the prior year primarily due to the COVID-related delays that were experienced last year.
We view these higher investment levels in both maintenance and cemetery development as timing-related and we are reiterating today our $270 million to $290 million maintenance and cemetery development annual investment guidance for the full year of 2022.
From a growth capital perspective, we deployed $50 million towards the purchase of real estate, construction of new facilities, and expansion of existing funeral homes and cemeteries across our footprint.
On the acquisition front, we had a small transaction close in the Mid-Atlantic region for only about $2 million. However, after June 30th, we closed on another transaction on the West Coast.
Currently, though, we have several pending transactions in various stages and we anticipate having what we would call a robust second half of acquisition activity this year.
We remain very pleased with the acquisition pipeline, and we believe we will end the year at the higher end of our range of $75 million to $125 million of investment and accretive acquisitions.
Finally, we continue to returning capital to shareholders, with nearly $144 million being returned this quarter alone through dividends and share repurchases.
Now, I’d like to shift a few comments about our financial position. We continue to have strong balance sheet with a favorable debt maturity profile and great liquidity of just over $930 million at the end of the quarter. That consisted of about just over $200 million of cash on hand, plus almost $730 million available on our long-term bank credit facility.
Additionally, our leverage at the end of the quarter was just under 2.7 times net debt to EBITDA. We will continue in the second half to invest capital and high return opportunities such as the acquisitions I just mentioned, new builds, and our share repurchase program. We will also comp higher EBITDA quarters from the prior year that were positively impacted by COVID activity. The result is our expectation for leverage ratio to increase from this level today and to end 2022 in the lower end of our targeted leverage range a three and a half to four times.
Now, let’s talk about the outlook for the remainder of 2022. We remain very comfortable and we reiterate our annual guidance for adjusted operating cash flow of $750 million to $800 million again for the full year of 2022. We’ve already generated $473 million of adjusted cash flow towards this annual target in the first half alone, partially boosted by the COVID activity in the first quarter.
Our annual guidance incorporates an anticipated decrease in COVID-related activities for the remainder of this year, resulting in lower cash flows when compared to both this first half momentum I just mentioned, as well as the second half of the prior year.
Included in this confirmed guidance is a slight adjustment to our previous cash tax payment estimate of $180 million to now be in a range of $180 million to $190 million.
And while we’re on the topic of taxes, from an effective tax rate standpoint, we now expect a range of 25% to 26% for the full year compared to previous guidance of 24% to 25%.
Our rate expectations change primarily due to non-deductible losses incurred from the negative financial returns on cash surrender value of certain life insurance policies we hold. This caused our effective tax rate percentage to increase in the quarter.
Finally, I would also like to make some comments on our corporate G&A during the first half of the year. This corporate G&A has been trending higher than our normal quarterly run rate as a result of higher annual ICP accruals linked to current operating results, as well as our long-term compensation plans that are tied to increases in our total shareholder return that have been pretty healthy.
As we look to the back half of this year, we do expect to revert to our normal quarterly G&A trajectory of $37 million to $38 million per quarter that I talked about and discussed with you on the February call earlier this year.
So, in closing through the first half of this year, we’re very pleased with our financial results and are excited about our continued momentum as we look to the back half of this year.
Most importantly, I’d also again like to thank all of our 24,000 plus SCI associates for helping to achieve these great results and serving the client families that you do so well.
So, with that operator, I’ll — that ends our prepared remarks from Tom and I. We’ll go ahead and pass it back to you and open the call up for questions.
Question-and-Answer Session
Operator
We will now begin the question-and-answer session. [Operator Instructions]
Our first question is from Joanna Gajuk of Bank of America. Please go ahead.
Joanna Gajuk
Good morning. Thanks so much for picking questions here. So, I guess, you mentioned the cemetery preneed sales rate declining over year, but still running pretty healthy versus the pre-pandemic levels.
So, I guess two questions, first, I guess when you talk about the 45% above the pre-coronavirus pandemic levels, is there a way to think about the breakdown for this number, how much is due to high velocity and how much is from high average price?
Tom Ryan
Yes, Joanna, I don’t have the — compared broken down, but I think just from speaking from using approximations, we’re — I think all three trends look very favorable. Our velocity is higher, quite a bit probably in the high single-digits. We’ve seen some healthy increases in sales average as we’ve invested in cemetery property and upgraded the cemeteries. And our large sales activity again, is more than double-digit percentages higher. So, really firing on all cylinders.
And I think the one thing I was just pointing out is we knew that last year was probably the peak, right, you had a lot of COVID activity. You had a consumer that was, for all intents and purposes, kind of, locked down and not anywhere to go. And two, you really haven’t seen any signs of inflation occurring in the economy. So, it’s a perfect world.
And the only difference we’re beginning to see in some of this is our speculation is we’re seeing some of the consumers particularly at the middle and the bottom of the socio economic demographic see and then pull back a little bit.
And again, we’re speculating that gas prices that’s electricity. Is it a good time for me to start a three-year payment on the cemetery property? Probably not, I’d like see things settle out. The good news is, and that’s what we’re trying to point out, these are leads that we maintain relationships with. And so as things settle out, we expect we’ll go back and close those contracts. But that’s really it.
And I think too, you’ve got a consumer, that means you’re seeing the airports and the lost luggage in Europe. I mean, people are out doing stuff, not just traveling, but they’re going to shows and doing different things. We’ve also seen some unique things like, COVID resurface. I know one region of our company in the sales region, we had, I want to say, 40% of our sales counselors out either on vacation, or with COVID, you got customers with COVID.
So, I think we just had a little bit of a of a of a difficulty that we expect to begin to work out of. We still have a very high propensity for, for customers to want — once we get in front of them. Our close rates are the highest they’ve ever been in the company. So, we feel really strong. We just wanted to point out, we are seeing a little bit of a consumer in attendance in this compared to a very attentive last year second quarter.
Joanna Gajuk
And I guess that actually was my question also in terms of dynamic — in terms of the preneed cemetery sales, maybe, some impacts there. And I guess in the quarter was down year-over-year obviously very tough comps, but up last time, you were talking about sufficient for the pre-cemetery sales to increase low single-digits for the year despite tough comps. So, is this still sufficient for the full year?
Eric Tanzberger
Yes, I think we believe we’re going to get back to slightly positive for the year when you look at the cumulative effect, or right around there. I mean, surely, still feel pretty good about getting back to levels for the whole year because we had a really solid first quarter as you’ll remember. I think we’re up over 10% We’re going to eat away at that. I think if you think of the back half year, we’ll probably be slightly down, but a cumulative year that achieves the same level as 2021 or thereabouts.
Joanna Gajuk
And I guess this also is linked to the recognized cemetery revenue. So, you mentioned last quarter this 50 projects that have been developed across the country, and that you expect record $35 million revenue over the rest of the year and maybe into early next year. So, are these on schedule, timing for when you might expect these revenues to come through, is it, kind of, tracking as you were expecting things when we last time talk about it?
Tom Ryan
Yes, Joanna, I think particularly in the fourth quarter, we anticipate having a lot of completed construction projects. And like I was kind of referencing in my comments, we really been selling hard into those. So, I think that impact on — to your point, recognized preneed revenue is going to be pretty significant when you think about the fourth quarter. So, probably going to recognize more than we sell in the fourth quarter by quite a bit. Probably not the same dynamic in the third, but again, we will have some completed contracts in the third quarter too.
Joanna Gajuk
Okay. So, — and I guess there are no delay in terms of just you mentioned some other things, but sounds like these are–.
Tom Ryan
You’re right. I think we feel good about the timing on all this.
Joanna Gajuk
Okay. And if I might just — very last question. So, you mentioned because I was also thinking in delays and things around just the labor because, I guess, the — I covered the healthcare services, so they talk about a lot shortages, and I guess you also mentioned, like sales people out on vacation, or actually down with the virus and whatnot.
So, can you just talk about what you see on your labor front in terms of either — just people not available for work, does that create any issues? And then I guess also on wage increases, what are you seeing there given the inflationary environment we’re in? Thank you.
Tom Ryan
Sure. So, if I bifurcated by funeral, the funeral front, we’re probably seeing overall wage increases in the 4% to 4.5% type of levels. Now, what that composed of two different things. One is, because we have more, I’ll call it, robust funeral services, this quarter versus last year, second quarter, remember, you still had a little bit of a lockdown effect, and not as celebratory on general level.
So, we’ll probably have more hours of labor when you think about overtime and things like that servicing a similar level of cases. But we’re also seeing a little wage inflation, particularly in certain markets. And our philosophy, like I said, before, led by Jay Waring, our Chief Operating Officer, is as we experience those, our local teams are sitting down and saying we’ve got issues, let’s give these wage increases.
Now, let’s find a way to put this on the price list. Because again, we do a fantastic job, and we want to be able to charge appropriate rates for our great people. So, we’re managing that away, I’d say we’re not seeing the same level, as you’re probably hearing about, but it is a little higher than normal, inflation is creeping into that.
On the cemetery side, it’s probably a little bit more. Some of our cemetery maintenance is internal and some is third-party contracts. And on both fronts, we’re definitely seeing some inflationary increases that we’ve absorbed, and they’re probably in the higher range, kind of, the higher single-digit. We’ve had those inflation now for a couple of quarters, so it isn’t brand new.
And again, we’re trying to manage as best we can. And again, pass along those costs to the consumer as we go through our annualized pricing. So, we feel good about being able to cover those through pricing, but we’re seeing a little bit of that creep in and as you would anticipate. But again, nothing — like I mentioned in my comments, it’s not a material event for what we do.
Joanna Gajuk
Thanks all. Thank you.
Tom Ryan
Thank you, Joanna.
Operator
[Operator Instructions]
The next question is from John Ransom of Raymond James. Please go ahead.
John Ransom
Good morning. Hope all is well in Houston? Sorry, COVID voice I guess. So, Eric or Tom, do you think there — is it possible there could be a structural pickup in M&A? Or do you think it’s just one of those good years?
Tom Ryan
Obviously, it could be either, John, because I think, our window is probably a 12 to 18 month window that we can get excited about or not be excited about. I think we’ve been telling you we’ve been excited about 12 to 18 months out. And I still would say that.
I tend to believe your first part of the comment, which is I do think we’re in a new era. And I think — if you remember in Investor Day when John presented, we upped our belief as to what we think we’ll be able to do on an annualized basis, not by significant amount, but I think it gives you an idea that we think, particularly, kind of, post-COVID and regulatory things that are going on, aging of the baby boomers, the family transitions. So, we’re — we believe it’s out there and we’re out there working hard and I’d say today, we feel very good about the pipeline.
John Ransom
Okay. And I probably know the answer to this question, but have you heard anything at all from the SEC?
Tom Ryan
No, we have not heard anything yet from the SEC, related to our response, which — I guess, that was back in 2019. Is that right? So, — yes, we’re still waiting to hear any SEC response. But again I just want to reiterate we continue on their main issue to have different levels of pricing that are out there and testing it in different ways. And we’re probably going to be ahead of the curve, and we don’t necessarily think whatever happens, is going to really have a material effect, John, on the long-term health of this business.
John Ransom
And then, like, I know, you’ve done a little bit of this, but is there a future where you do a higher number of de novos, than what you’re doing now? And what did ever move the needle?
Tom Ryan
It’s possible. The de novos are going to have, as we all know, just stating the obvious, just a slightly less return, because you’re kind of building up EBITDA, for the first two or three years as you’re as you’re building the brand new business.
So, it’s always nicer to be able to go in and not only have well established EBITDA streams, and well established businesses, and most importantly, partnering with the management teams and the owners that are in place with some of the wonderful businesses that we just purchased, for example, in the last year alone.
Ultimately, that’s just an advantageous effect and with us having only 15%, 16% market share and call the entire consolidation universe, kind of, in the 20% range, I just think that there continues to be opportunity out there subject to other market conditions, John, that acquisitions are just going to continue to be a little bit more lucrative. That being said, we’ve continued to ramp up the de novo spend, and we’ll continue to do that as well.
John Ransom
Okay. And then just the — well, never mind, I forgot my question. Just probably getting old. Thanks, guys. Appreciate the time.
Tom Ryan
Thanks John.
Operator
The next question is from Scott Schneeberger of Oppenheimer. Please go ahead.
Scott Schneeberger
Thanks very much. Good morning all. Just following up on John’s question on M&A. Eric, you mentioned closing something after the end of second quarter, just curious on the West Coast and then this this illusion to guide to being a strong year in M&A? Could you give us a sense of how large that acquisition is that you already closed?
Eric Tanzberger
The acquisition that we closed was not tremendously large acquisition, it was less than $10 million of a spend. What we’re talking about in terms of the excitement is the things that are in the pipeline right now that we expect to close that we’re very excited about. So, more to come on that, Scott.
Scott Schneeberger
All right. Thanks. Appreciate that. I came on a little bit late, my apologies if this has been covered. But funeral pricing growth remains pretty strong and I’m just curious how inflation works into that. And when I came on, I think you said something about flowers and ancillary services being soft. And that’s the part I missed the, which flies contrary to the strength in the numbers.
So, could you just elaborate on I guess the way to address it is going forward? How do you see funeral pricing growth? Is that going to step up to cover costs? Or is that something that that may just steady state from here or even go backwards? Thanks.
Tom Ryan
Yes, Scott, I think, we do believe we can pass along inflationary costs in a standard theme and what you missed earlier, we talked about a few things that are happening differently. If you recall with COVID, especially initially, we saw a real decline and I’d say the full service funeral and part of that was because the lockdown, access to vaccines, all those types of things. So, people were doing smaller ceremonies, having smaller rooms or no rooms, not buying a lot of flowers or catering. What we’re seeing is a robust reawakening of all that. And — so you think about what’s going on, one of the strategies that we were already putting into place is upgrading a lot of our facilities to have some differential opportunities for, let’s say, facility charges.
So, as you go into a place, you could get the premium room in one price, you get the middle room or the lower room, we’re seeing a lot of people buying up into that premium room, we’re seeing a lot of people buying more flowers, more catering for their specific services. We’ve done an incredibly good job our teams have working on what I’ll call, third-party flower sales.
So, if you think about the website, so obviously, we sell a lot of flowers to the family, but the friends and family they go to the obituary click on, we’re selling more and more flowers through our partnership there and that too, is driving — all these pieces are working together to drive differential average.
And at the same time, we believe we can pass along all the inflationary pricing. Now, the one thing that puts pressure on pricing every year is that cremation mix change. And we anticipate that to continue. That’s probably going to be a bit of a headwind.
One unique thing I noticed about this quarter and it’s so immaterial for us compared to others, but I thought about it, as I looked at Colgate and Procter & Gamble, we’re seeing, believe it or not, even through Canada, because of the strong dollar, the Canadian dollar conversions probably a bigger impact on us than — or as big an impact as cremation mix when you think about average. The nice thing is you convert the cost into dollars, too. So, it really didn’t hurt you to drop to the bottom-line.
So, we feel good about pricing and we will pass along inflationary and want to continue to drive more robust celebrations of life, utilizing our great and improving facilities and combine that with catering, flowers, and other things that make a celebration of life special.
Scott Schneeberger
Thanks. Appreciate that. And just quick answer if you already covered it, but it’s done in the release a cremation rate ticked up a little bit in the quarter, just comments on that sustainability or if that was a blip? Thanks.
Tom Ryan
I think Scott as you remember, we saw a bit of the cremation rate back up last year and we even saw a little bit of it in the first quarter. And we always thought the trend pre-COVID was 100, 150 basis points a year, we went to less than 100 basis points, I think it was for many quarters last year. So, I think you’re just seeing a little bit of a reversion to the mean, it’s 170 this quarter, I wouldn’t get excited about that. But I do think we anticipate getting back to that annual trend of 100 to 150.
And our excitement is we have so much more to offer the cremation customer today and we think in the future that’s a real opportunity for what is now 55% of our customers. So, we’re just thinking about how can we do more? How can we serve them better, and get excited about it.
Scott Schneeberger
Understood Tom. Thanks. And just one last one. It, kind of, I think a good overview was provided of — from Joanna’s questions with regard to cemetery preneeds. But if I could just summarize and you could add a little color on this, we saw a slowdown in the second quarter, maybe a little bit more than you expect. It sounds like it was a bit of the consumer and maybe just delay and maybe some unique items, but you still sound confident in achieving, let’s call it flattish to slightly positive for the full year in premium cemetery.
Is it because you just, how are your leads looking? What gives you that confidence and any commentary as to the cadence of second half this year, next year of premium cemetery? Because I think you’re trying to smooth that pretty well. Just want to understand how comfortable you feel on handling the reversion from a potential pull-forward? Thanks.
Tom Ryan
Yes, I think we still feel very good. And so to answer, there’s a lot of a lot of questions, but I’ll try to summarize. So, let’s break it down. When you think about the consumer right now, we’re still seeing a very healthy, I’ll call, high end consumer. So, large sales have hung in there. Even with the stock markets being down in the first half of the year. We got a little bump back in July. Hopefully that’s there. So, the confidence is there.
I think the real issue for us and by the way, the average sale, even outside of that is hanging in there very good too. So, we’re really talking about is what’s happening with velocity. Well, I’ll tell you that from a leads perspective, we’re still doing great, we’re still seeing a significant amount of leads. In the front, we’ve had, at least temporarily is, are those appointments holding. If people are — we set an appointment, and then somebody cancels or because they’re going on vacation, or they got something else to do, or their get their gas bill and go, I’m not going to do that. So, we believe there’s a little bit of inflation, a little bit of distraction, because I have other things to do.
The other thing that I mentioned to you is, we’ve seen an outbreak of COVID amongst consumers and, probably is — again, it’s not as deadly COVID, but still people sick, and you’re not going to take an appointment, or a counselor can’t go back and follow-up.
So, our belief is, as we fight through this, our counselors will get back, these appointment rates will hold better, our close rates are really good. So, absent inflationary problems, cause that people may not want to pull the trigger, we still feel very good, because the leads are there, our are counselors are very effective. We actually believe we’re going to have more leads. So, I continue to think things are good. And the only thing I’d point out, and this isn’t news to you guys, because you read the news, like I do, inflation has crept in. And if you’re a monthly — if you’re going to buy over 36 months, and you’re sitting down in your budget, you may be saying right now, I got to cover the gas bill and so maybe I’ll put this off. And I think our belief is, is that subsides, people are going to get back in the game, and there’ll be an opportunity for us to really go back out to sales channel.
Scott Schneeberger
Got it. Thanks Tom. Appreciate that summary.
Tom Ryan
Thanks Scott.
Operator
The next question is from A.J. Rice of Credit Suisse. Please go ahead.
A.J. Rice
Hi, everybody. Just to make sure I know, we’re sort of approaching normalcy, would you say COVID-related cases this month and sort of — or this quarter sort of where you think they’re going to settle out, or you still feel like that’s somewhat elevated, relative to where things shake out? I know, you’ve talked about it being down 50 million year-over-year, I think — I got that, right.
Tom Ryan
A.J., I think that, COVID cases on a national basis, I think, now are like 300 — if I remember, right, 300 deaths a day. I would expect it that’s probably going to continue for some time. It’s very low relative to the periods of COVID, but it’s just not material to our numbers. So, — like, we tried to point out an Investor Day, I think we’re experiencing, we’re servicing elevated numbers of consumers. And you’d say, okay, what is that, Tom? Well, we’ve mentioned a little bit, we think there’s still excess deaths, we think we can correlate it with lack of healthcare, people probably drinking too much, smoking too much, driving too fast, depression, access to mental health.
The other thing that we see — and this is kind of a — it’s tough, because it isn’t perfect data. But we’re seeing what we believe are market share gains, and really kind of across the board, but probably more acutely in the West, as we look at states like Arizona, Nevada, Colorado, California, we appear to be gaining a decent amount of share in those markets.
So, I think those are the reasons why we sit here and say, yes, COVID is not going to have an impact. But we think we’ve probably got deeper market share penetrations combined with what we believe are excess deaths that will continue to occur in the near-term over the next few years. I hope the country gets healthier, I hope access to healthcare gets better, but the trends don’t support that thesis.
A.J. Rice
Now, for some time, there’s been discussion about your emphasis on pre-arranged funerals. As that book matures and you started really ramping that up post the credit crisis, that would drive some market share gains, is that what you’re seeing? Or is it something else that you think is driving those market share gains?
Tom Ryan
I think that contributes to it, A.J., because one of the things if you think about the markets that I just mentioned, they are high combination facility market. So, as you think about Colorado, Arizona, so more — again, more specifically, probably Phoenix, Denver, L.A., really all up and down California and you look at those places, Las Vegas, Nevada, those are places where we’re really knocking the ball hard, where we’ve got great cemeteries, we’ve got great sales forces, I do believe that they’ve penetrated those markets. So, surely a contributing factor not all of it, but that’s why strategically we’ve set out to do those things.
A.J. Rice
Okay. Any updated thoughts on — you guys have been good throughout this — just try to give a sense of how much pull forward was sort of near-term? And how much is more long-term? Have you revisited that as time is passing in any way? And any updated thoughts on what that pull-forward of COVID deaths imply from the next number of years?
Tom Ryan
Well, Eric has got a medical degree, and he’s a professional demographer I’m going to pass that to him. He’s been studying this A.J.
Eric Tanzberger
Yes, A.J., just really no data is what I what the short answer is that we talked about at Investor Day. We put some numbers out there that we thought there was somewhere in the range of 15,000 ish cases that were pull-forward in 2022, probably the same in 2023 and that really drops off.
So, as we’ve gone in and try to look at it a little bit and decide how far off are we? The answer is probably, we’re pretty close to those estimates, at least for the visibility that we have now. So, no change — no material change to really report as the answer.
A.J. Rice
Okay. And obviously, you commented on the acquisition pipeline and your optimism about that, is there anything that you’re seeing? I know, it ebbs and flows, but is there anything that seems to be driving a bit of an uptick in activity? And any comments you can make on whether pricing on potential deals is relatively stable or moving around or competition for deals, if there is any?
Tom Ryan
Yes. So, I think first of all, we do think more people are out there trying to sell I think it’s a combination of the aging of the owners without a succession plan. Because most of these are owned by baby boomers, right. So, every year, they get a little bit more, I’d like to have more free time and have a liquidity event.
And so I think that’s just a natural backdrop that we’re working against. Combine that with COVID, which has been kind of a two and a half, three year frenzy, and people having to work really hard people having to deal with staffing issues. So, I think that puts a lot of pressure on a reason to sell.
As far as price goes, I think we’ve held pretty good. I’d say it’s, it’s probably — people come in with an expectation, as you can imagine, here’s my 2021 numbers, I’d like to be paid for that. Our opinion is, those aren’t sustainable numbers and so we try to realistically say, what’s the pace of this business. And — but that’s obviously going to start a conversation at a higher expectation.
So, I would say it’s not materially different, but I do think that’s part of the process and at the end, I think we get to a good answer. So, as far as the competitors go, it’s really the same groups of people that we see out there. I don’t see a lot of new entrants, but if you roll back the clock five years, there’s probably a little more activity a little more competitive pressure as you think about the acquisition pipeline.
John, did you — disagree [indiscernible] John agrees with me. That’s rare. So, write that down.
A.J. Rice
Okay. Thanks a lot.
Tom Ryan
Thank you.
Operator
This concludes our question-and-answer session.
I would like to turn the conference back over to SCI management for closing remarks.
Tom Ryan
Thank you, everybody, for being on the call today. We appreciate you and we look forward to speaking to you again, I believe, in late October, early November. Talk to you soon.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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